Competition policy for the Digital Single Market: Focus on e-commerce

Berlin, 26 March 2015

Margrethe Vestager - Commissioner for Competition

Speech at the Bundeskartellamt International Conference on Competition

Building the Digital Single Market

The process of European integration has torn down borders. This is one thing everyone knows and likes about the EU. It has become normal to travel from Germany to Poland – say – and take back home the goods you have bought during your trip.

Unfortunately, buying goods online is a lot more difficult. It sounds like a paradox, but we still have a number of digital borders. It is high time we removed these barriers, which keep Europe’s digital markets fragmented.

The potential of information technology for our societies and economies is huge. And we have a lot to do in Europe to tap this potential. This is why we work with great determination on the creation of a genuine Digital Single Market.

And this is not only about shopping online. For instance, it’s never been easier to stay in touch with family and friends.

Personally, I find it very useful that I can send flowers to my American relatives with just a few clicks.

Of course, we need to be aware of the implications of being always online – and not all of them are good for us. For instance, privacy has become a concern.

There is also a political side to the issue. The European project has always been about bringing together the peoples and the countries of the continent. And with our Single Market also free movement of goods, services, capital and people.

We simply cannot miss the opportunities offered by technologies that – in principle – are indifferent to the borders between countries and continents.

This means that it does not make sense for the countries of the EU to have 28 different rules on telecom regulation, 28 national regulators, and 28 different ways of allocating spectrum within national borders.

Europe is competing for business and talent with our main trading partners. In this fragmented environment, it is not easy to promote the emergence of European digital-economy players that can succeed on the world stage.

A well-functioning Digital Single Market could add about €340 billion to the GDP of the Union.

340 billion Euros. That’s quite a large figure. We are talking about the output of the economy of my native Denmark – just to give you an idea of its magnitude.

The stakes are high, and the good news is that the EU institutions are already showing their resolve.

Two weeks ago the European Parliament voted a Commission proposal to cap the costs of using debit and credit cards for EU citizens and merchants – the so-called interchange fees.

The draft regulation is mainly about transparency in the payment industry. But this is also a step in the right direction for the Digital Single Market, because we frequently use our cards to make payments online.

The digital economy: A priority for competition policy

For all these reasons, it will not come as a surprise to you that the digital economy is among my priorities.

European consumers should be able to access goods, content, and other services no matter where they live and travel in Europe.

Open and fair digital markets can bring benefits to both consumers and businesses. To consumers, they give a wider choice and they give better prices.

As to companies, the benefits of a truly pan-European scale are clear. We must extend to online markets the opportunities created by our internal market for goods and services.

Our task as competition enforcers is making sure that the Digital Single Market is a place where all players – large and small – can compete on the merits of their products. And this is as close as I will get to our ongoing investigation into Google’s business practices, which is not a subject for today.

Competing in a Single Market without internal barriers prepares companies to take on their rivals around the world. Because you need to be able to compete at home if you want to compete abroad.

In this context, we should bear in mind that generally it is not more regulation that makes companies innovate and thrive.

The bad news is that the reality on the ground is a far cry from really integrated digital markets. There are still many barriers that keep them fragmented.

Some of these barriers are due to public policies. Others are erected by companies, either because of the way they run their business or because of the arrangements they have with other companies.

And this is where competition policy comes into the picture.

E-commerce

Take online commerce, which is a crucial area for the Digital Single Market.

Europeans have embraced e-commerce with glee. In 2014, one European consumer in two shopped online. However, only about one in seven bought something from across a border.

How can we explain this gap?

There are various reasons why people are reluctant to shop abroad. One obvious reason is language.

Another – less obvious – are the different national rules that make it difficult for companies to sell their products abroad.

But often it’s the companies themselves that undermine cross-border trade by erecting technical barriers such as geo-blocking.

Geo-blocking prevents consumers from accessing certain websites on the basis of their residence, or credit-card details.

I, for one, cannot understand why I can watch my favourite Danish channels on my tablet in Copenhagen – a service I paid for – but I can’t when I am in Brussels.

Or why I can buy a film on DVD back home and watch it abroad, but I cannot do the same online.

And it’s not only me who struggles with digital borders. About one European in five is interested in accessing content from other EU countries.

The same applies to the sale of tangible goods.

Think of a French tourist who buys a pair of Italian shoes in Rome. Why is she re-routed to a French website when she tries to buy them online from home?

It is very difficult to explain this to the people and, at the same time, make the point that we are all residents of the EU and consumers in the same internal market.

Restrictions like these are often the result of arrangements that are included in contracts between manufacturers and content owners on one side and their distributors on the other.

These arrangements fall under EU competition law. Specifically, they are covered by the Block Exemption Regulation and the Guidelines on Vertical Restraints – also called Vertical Guidelines.

The Commission updated these rules in 2010. The review made clear that, in principle, every distributor must be allowed to use the internet to sell its products.

Conversely, consumers must be allowed to look for the best deals online wherever they want. Contractual bans of so-called passive online sales are therefore considered hard-core restrictions of competition.

These rules are there to give legal certainty to companies and make sure that the law is applied in the same way throughout Europe. This is crucial if we want companies to benefit from the scale of a genuine Digital Single Market.

Understanding where digital markets go

But online business and markets move quickly and the Vertical Guidelines can only give us a general framework.

We need to put more flesh on the bones and there are two main ways to do it. One is our assessment of individual cases; the other is trying to better understand digital markets and their evolution.

We are learning quite a bit from our current cases. Last year, we opened a formal investigation involving major US film studios and large European broadcasters and their licensing contracts.

We are examining the clauses in their contracts that prevent existing and new subscribers from accessing satellite and online pay-tv when they are outside the area covered by the license.

Another case we are investigating is about restrictions to pricing and cross-border trade of consumer-electronic products over the internet.

We have carried out inspections at large manufacturers and, more recently, at online retailers and my staff are analysing the information they collected.

Finally, we are investigating the alleged geo-blocking of certain video games sold online for personal computers.

Launching an inquiry into the e-commerce sector

But the insight that we can gain from individual cases is not systematic. Sound competition policy in fast-moving markets also requires thorough market knowledge.

To acquire this knowledge, the Commission can conduct inquiriesinto sectors of the economywhere there are indications that competition is restricted or distorted.

So, to better understand how online markets work and where are the obstacles to competition, I will propose to the Commission the launch of a sector inquiry into e-commerce.

Similar inquiries were conducted in the past – including in energy, financial services, and pharmaceuticals – and they have been quite useful for the enforcement of competition law and for general legislation.

We are designing this sector inquiry with one main goal in mind. We intend to identify what hampers competition in e-commerce when sales straddle national borders.

We want to focus on the barriers to the cross-border sale of goods and digital content erected by private companies, especially in their distribution contracts. We also want to focus on the areas where e-commerce is most used.

We would therefore collect information from a large number of firms in every country of the EU. The companies that would receive our questionnaires include holders of content rights, broadcasters, manufacturers, merchants of goods sold online, and the companies that run online platforms such as price-comparison and marketplace websites.

I would also like to add that the inquiry initiative is closely linked to the overall digital strategy of the European Commission.

Several Commission departments are working on the Digital Single Market at the moment. Understanding and facilitating cross-border online commerce is an important part of the contribution of the competition department.

As to the timeline, it is still too early to give you exact dates. For the moment, I can tell you that I will propose the inquiry to the Commission in May.

If everything goes to plan – you can expect to read our preliminary findings online in mid-2016.

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A sector inquiry on e-commerce will have several implications.

First, a fact-finding exercise that covers the whole of the Union is a token of our resolve. When we say that digital markets are a priority for competition policy, we mean it.

Second, I hope that the inquiry will strengthen and make more uniform the action that the Commission and Europe’s national competition authorities take against restrictions of online sales.

In addition, the findings will give better guidance to firms. They will also encourage executives to stay on the right side of the law by setting up compliance programmes and other preventive measures.

Finally, the findings will likely be valuable information for the initiatives that this Commission is taking to advance the Digital Single Market.

This point is important.

Enforcing competition law is a delicate task with far-reaching implications, but we have to be realistic.

We can deal with the agreements that restrict online trade and with abuses of dominant positions, but where we find competition is not working for other reasons, only co-ordinated reforms can remove the wedges that keep EU digital markets fragmented.

But my message today is optimistic. The Commission is determined to turn the Digital Single Market into a reality.

Together, we will find sensible and pragmatic ways to create good conditions in Europe’s online markets to the benefit of business, content owners, and consumers alike.